Please note that the following document, although believed to be correct at the time of issue, may not represent the current position of the CRA.
Prenez note que ce document, bien qu'exact au moment émis, peut ne pas représenter la position actuelle de l'ARC.
Principal Issues: An individual (Plaintiff) was injured when a XXXXXXXXXX . The Plaintiff commenced an action for damages against various defendants. Pursuant to an out of court settlement, the casualty insurer of the defendants will assign their rights and obligations to an assignment company who will purchase a single premium annuity contract with a life insurance company to provide the proposed periodic payments to be received under a structured settlement arrangement. The assignment company will direct the life insurance company to pay the periodic payments under the annuity contract to the Plaintiff or the Plaintiff's estate. Will such payments be taxable in the hands of the recipient?
Position: No.
Reasons: The terms of the structured settlement are consistent with the CRA's position as set out in paragraph 5 of Interpretation Bulletin IT-365R2.
XXXXXXXXXX 2008-028461
XXXXXXXXXX , 2008
Dear XXXXXXXXXX :
Re: Advance Income Tax Ruling
Structured Settlement
XXXXXXXXXX
We are replying to your letter of XXXXXXXXXX , wherein you requested an advance income tax ruling on behalf of the Plaintiff with respect to the proposed structured settlement for damages arising out of personal injuries suffered by the Plaintiff. We also acknowledge the additional information provided to us during our telephone conversations (XXXXXXXXXX ).
We understand that, to the best of your knowledge, and that of the Plaintiff, none of the issues described herein is:
a. in an earlier tax return of the Plaintiff or a related person;
b. being considered by a Tax Services Office or Taxation Centre in connection with a previously filed tax return of the Plaintiff or a related person;
c. under objection by the Plaintiff or a related person;
d. before the Courts or, if a judgment has been issued, the time limit for appeal to a higher court has expired; nor
e. the subject of a ruling previously issued.
Our understanding of the facts and proposed transaction is as follows:
Facts
1. The Plaintiff was born on XXXXXXXXXX , and his current address is XXXXXXXXXX . The Plaintiff lives within the jurisdiction of the XXXXXXXXXX Tax Services Office and the Plaintiff's Taxation Centre is in XXXXXXXXXX .
2. XXXXXXXXXX .
3. The Plaintiff, the Plaintiff's late spouse (by the Plaintiff as the Administrator of her Estate), XXXXXXXXXX (the "Plaintiffs") commenced an action by Statement of Claim issued on XXXXXXXXXX in the City of XXXXXXXXXX against, among others, XXXXXXXXXX (the "Defendants"). The Defendants are insured by XXXXXXXXXX .
4. The Plaintiffs reached a settlement (the "Minutes of Settlement") with the Defendants with respect to their claims, subject to receipt of a favourable income tax ruling with respect to the payments under the Minutes of Settlement.
5. The terms of the Minutes of Settlement provide, among other matters, for payment to the Plaintiff of monthly payments of $XXXXXXXXXX commencing on XXXXXXXXXX , and guaranteed until the Plaintiff reaches age 65 on XXXXXXXXXX , and guaranteed lump sum payments of $XXXXXXXXXX to be paid on XXXXXXXXXX and $XXXXXXXXXX to be paid on XXXXXXXXXX .
6. The obligation to make the payments referred to in 5 above will be met by XXXXXXXXXX (the "Insurer") by virtue of an assignment and assumption of the obligation to make such payments pursuant to an Assignment and Assumption Agreement. In consideration of the Insurer making such payments, the Plaintiff settles his claims against the Defendants. The Insurer will not, however, be released and discharged from making such payments and each payment shall to the extent thereof and only to that extent, operate as a pro tanto release and discharge of the obligation to make such payments.
7. The Insurer proposes to fund its obligation to make the foregoing payments under the settlement by the purchase and issue of a single premium annuity contract issued by XXXXXXXXXX . The annuity contract will be non-commutable, non-assignable and non-transferable.
8. The owner and annuitant (beneficiary) under the annuity contract will be the Insurer, however, an irrevocable direction will be executed in respect of the annuity contract directing the issuer to make such payments directly to the Plaintiff or, in the event of his death before the end of the guarantee period, to the estate of the Plaintiff.
Proposed Transaction
9. The Plaintiff proposes to enter into the Minutes of Settlement arrangement containing, among other matters, the provisions set forth in 5 above.
10. Notwithstanding the above, no payments under 5 above shall be made prior to the date of this ruling.
Purpose of the Proposed Transaction
11. The purpose of the proposed transaction is to settle the claim for damages of the Plaintiff against the Defendants in respect of the Plaintiff's injuries and the death of the Plaintiff's late spouse, and to provide for the payment of damages in respect of such claim.
Ruling Given
Provided that the above-mentioned facts and proposed transaction are accurate and constitute complete disclosure of all the relevant facts and proposed transaction, that the Minutes of Settlement and the Assignment and Assumption Agreement are substantially the same as the documents provided to us, as reflected herein, and that the transaction is carried out as described herein, we confirm that the payments, as set forth in 5 above, which will be received by the Plaintiff or the estate of the Plaintiff, as the case may be, as set forth in 8 above, will not be subject to tax in their hands under any provision of the Income Tax Act (the "Act"), as it presently reads.
The above ruling, which is based on the Act in its present form and does not take into account any proposed amendments thereto, is given subject to the general limitations and qualifications set forth in Information Circular 70-6R5, dated May 17, 2002, issued by the Canada Revenue Agency (the "CRA"), and is binding on the CRA provided the minutes of Settlement and the Assignment and Assumption Agreement are executed on or before XXXXXXXXXX .
Yours truly,
XXXXXXXXXX
For Director
Financial Sector and Exempt Entities Division
Income Tax Rulings Directorate
Legislative Policy and Regulatory Affairs Branch
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